Financial Accounting For Management Firm Evaluation – Steps, Considerations, And Audit Program

Steps needed to consider before accepting to do an audit and apply them to BSF Ltd.

Describe about the Financial Accounting for Management Firm Evaluation.

Auditor evaluates the financial statements by the management of the firm. Management appoints the auditor but it owes a moral, ethical and professional restriction to the whole set of stakeholders in order to render a professional evaluation of the finances league. In order to makes rigid evaluation the auditor makes sure that the information shared is good enough and need to deal with more statements at the time of ambiguity rising. Until the time of any doubt statement prevailing for under expenses, assets and revenues that completely address the financial statements are not answerable to the deeds of the stakeholders. Therefore apart from the management of the firm address should be also given to stakeholders as profiting under the evaluation process (Blankespoor et al, 2013). Here the auditor at least needs to be honest and professional.

Few considerations should be taken when the professional accountant accepts an audit task. These considerations should be based up the facts related to ethical conduct that might be a threat to the whole legal compliance. This might also result in bringing down the auditor’s integrity. This counts the auditors duties to collect details of the clients, finding the nature of audit task, its online work, business operations under current functions (Lukka & Pihlanto, 2014).

If there is some unacceptable risk in the task then it shall fall into rejection. It does mean that auditor needs to undertake proper diligence process and evaluate new proposals with care in order to know the customer (Richardson & Ternes, 2014).

After the Auditor accepts client’s offer the firm has to evaluate certain tasks pertaining to be undertaken for evaluation thereby making it sure dragging ambiguity into their objectives. New tasks have potential threats if the client firm transit the partners or team member for holding share. If the team in finding any potential threats then the proposal made by the client is not needed to turn down but lot safeguards should follow the measures in giving surety that this does not affect the spotless audit work by reducing threat at an acceptable level process (Lodhia & Hess, 2014).

The auditor also frames about the potential conflict of interest that might arise because of the acceptance. Again evaluation is done to know if there persist any safeguards measures that might reduce the risk level. In case of BSF client of a specialized industry, auditor need not check about their capacity and specialized skills for setting evaluation works made by client film. There will then be a possibility of arising threat for self-interest if the auditor accepts the work without having any qualified skills to undertake the role of audit. Other matters too should be considered before driving into the work, those matters are like: deadline, resources requirement for meeting client expectation etc.

As per the present circumstances Audit Risks is defined as a situation where the auditors states an opinion that are inappropriate and not satisfactory for the circumstances aroused out in audited financial statements. This is a combined features classified as inherent risk, detection risks and control risk (Banker et al, 2014).

If the inherent risk of the BSF Ltd. is estimated as 90% and the control risk and detection risk are estimated at, respectively, 5% and 80%, if my audit firm accept the role of doing an audit of BSF Ltd.

In case of inherent risk, this are tasks present in financial statement due to most likely of misstatements resulted from omissions or commissions which is not similar and controlled different as per the requirement. Inherent risks occurs when the organization is highly subjective like that happened with BSF limited (Welker, 2015). The research that BSF limited tackle falls under high instinctive parameters and thus requires more personal opinions and judgment for forwarding the world. This implies high inherent risk.

In case of control risk, BSF limited risk was found to be 5% which is lower than expectation value. The control risk is the risk to determine material misstatements aroused out to lack of control or failure of the control mechanism (Kanagaretnam et al, 2013). To check such misstatements BSF related organizations should place their internal control measures. Therefore auditor must put a commentary regarding the organization’s state of internal control. In this context, the internal control becomes more effective and shows its work in a very well form.

Company like BSF should have faced higher risk due to its size and positions which are not well defined by the firm management so as to control the situation.  

From the other fold side, here detection risk is the inability of the auditors or part failure in detecting the potential misstatements in the financial statements of firm. The auditors reproach its duty in detecting the misstatements in the financial statement while applying the audit procedure in a very well defined manner (Kanagaretnam et al, 2013). If its team fails in detecting the commission and omission errors, complete material misstatement in the book will occur that would again bring adverse effect among users interest. Again the audit team undertakes various sample tests for minimizing the risk.

Audit team usually applies the Audit risk for making the full audit risk. This is the combination value of the three risks discussed here. Here the result for the audit risk is the multiplied value of the three risk mentioned (Banker et al, 2014).

Audit risk = Inherent risk x Control Risk x detection risk

In determining the inherent and control risk, the auditor team should proceed in their formal procedures. Tackling of this risk minimize the overall through a formal discussion but the team will decline the engagement owing to the higher overall risks (Cervone & Pervin, 2015). Detection risk is meant likewise that to residual risk and the audit members take cautious steps to reduce it. But it will devour more manpower and the time frame be discussed with management prior to the acceptance of the task.

In case of high detection risk lower level of inherent and control risk can be seen. But if they are high, the audit team would accept lower level of detection risk. Here the complete risk in BSF is on the higher side when both inherent and detection risk seems to be larger.

The overall audit risk is calculated as:

Audit risk = Inherent risk x Control Risk x detection risk

List and discussion that needs to be included in an audit program for the BSF Ltd. including general coverage plus the specific items covered above.

= .9 x .05 x .8 = .036 or 3.6%

Normally the audit team considers anything below 10% as moderate. This indicates that audit risk in BSF Limited is low. Thus considering the audit in this case will be feasible.

Audit program is worked out by an audit team which places correct procedures of auditing required by team to collect sufficient number of audience confirmation. The procedure gets its confinement with the team’s comprehensive understanding about the accounting system of the client firm like that of BSF Limited (Banker et al, 2014). The strategy devised shows a clear idea of the system and is sought to bring good impact over control tests and other substantive requirement and make sure of the evidences collected within the time frame. This program also makes sure of the audit opinion about client’s financial statement.

The following shall be part of the proposed audit program:

1. Financial reports – monthly ‘
2. Financial reports – quarterly.
3. chart of accounts listing
4. Trial balance of the company at the year end.
5. Review the work of the previous auditor and opinion expressed thereof.
6. List of funding received and report showing their allocation to intended destinations.
7. Checking of all the relevant opening balances
8. Checking of relevant ledgers including cash and accounts receivables etc.
9. Summarize the bank deposits and reconcile the same with home office accounts data.
10. Reconcile bank statement with the official account.

External auditors audit the financial irregularities for effective external audit. Even the journal entries have ability to unearth the financial irregularities. Thus auditor begins and designs the process emphasizing the control of journal created by accounting department of client firms. The team also should make sure of the testing made for accuracy of journal entries and also enquire the individuals in change for entry and allocating funds process (Kanagaretnam et al, 2013).

Research and development activity has set as the key factor for BSF and its success is important but here the final outcome is uncertain and thus relies upon various external factors. In successful framework it comes up like a market tool in making commercial success done through embracing the need to customer.

In this case the auditor ensures the proper planning and intermediate targets through research and development activities. Again intermediate targets are tied over time scale and budgetary allocations. With respect to the commercial property potency, journal entries are tied by auditors. These actions are performed by BSF while expenses are warranted by marketing reports (Kanagaretnam et al, 2013).

With relation to new research, the measurement form performance undertaken by BSF is a difficult proving scheme while expenses allocate with capital and daily expenditures. Even though, larger part is spent upon materials and capital equipment. Thus the team needs to examine and fix the proportion to be made upon the operation. However this is very subjective and should have a proper establishment as per the industry trends considered over a higher degree (Hoque, Covaleski & Gooneratne, 2015).

CSIRO permission is meant and needed to be used over separate principle and thus the calculated fund is $400 million out of $500 million. Therefore CSIRO allocation should handle an amount if $100 in the end of 2016. If there is any other allocation in case of the company’s expenditure or due to any other purpose, then it should be pointed out. This is the work of management to completely explain the reason for deviation over the matter which later on shall be put under a different set of original entries (Cervone & Pervin, 2015).

Traditional reporting come under Triple bottom line and includes: social, economic and environment performances. This approach was assumed by Freer Spreckley in his late 80s to bring social audit in corporate industry. Thus by including triple bottom line approach was a benefit means for BSF Limited in its financial statements.

The report about company management was found out to be socially desirable and environment friendly. This as per the audit perspective looks bit overdone. According to media reporting and many more industries this firm had fallen under the criticism of many because of its diversion made for flooding type in course of luxury fishing making thus letting out huge food sum in upcoming future (Chen et al, 2013). This path faced many criticisms calculating to its pro rich and anti- poor measurement. This led to change in firm undertaken work through counterfeiting input food segments.

It can be seen that the company was initially criticized because of its fault in research methodology which passed unto correction seeing much extension. Again the auditor hesitates to sign document inclining to state that triple bottom line had led to change in dimension of research process (Vasarhelyi, Kogan & Tuttle, 2015). But the auditor has to state the point of explanation about the lack of complete information and endorsement met during the discovery information.

Yes. The auditor would more keen in signing the document based upon the necessary information generated in due scale to insufficient marketing research. Documentations are established as per the affirmation or contended data as per the condition of the market. The clear establishment is made out of the generated revenue in the fourth coming time where the management has a clear sense of understanding of the situation. Since less market competition is seen because of the rare technology demand, therefore chances of duplication will need time. It therefore can be predicted that the form would see any completion based upon the current market research (Richardson & Ternes, 2014). Even though the market has potential to get changed in 1-2 years, this in turn can change the patent value considerably in upcoming future. However, this pricing upon the current market condition and needful perception, all the suspicion will volatile once the auditor knows about the value that the team had undertaken while evaluating it.

References

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